Overnight Report: Shopping Shock

World Overnight
SPI Overnight (Mar) 6002.00 – 11.00 – 0.18%
S&P ASX 200 6059.40 – 4.20 – 0.07%
S&P500 2745.73 – 7.30 – 0.27%
Nasdaq Comp 7426.95 + 6.58 0.09%
DJIA 25439.39 – 103.88 – 0.41%
S&P500 VIX 16.22 + 0.57 3.64%
US 10-year yield 2.66 – 0.05 – 1.88%
USD Index 97.01 – 0.13 – 0.13%
FTSE100 7197.01 + 6.17 0.09%
DAX30 11089.79 – 77.43 – 0.69%

By Greg Peel

Big Ups & Downs

The ASX200 shot up 30 points in the first hour yesterday before fading all the way to the close. Wall Street had provided a mildly positive lead but it was a big day for earnings results.

As was the case on Wednesday, there were some very substantial share price responses to yesterday’s result releases, in both directions.

It was toasted sandwiches all round as Breville Group ((BRG)) took out the gold with an 18% gain. Premier Investments ((PMV)) jumped 6% because it owns a third of Breville (pity about Myer).

Cleanaway Waste Management ((CWY)) was far from rubbished with a 13% jump. Magellan Financial ((MFG)) surged 9.9%, which is a big move for an index proxy. And special mention goes to funds management platform GBST ((GBT)), which is not in the index, but it rose 15% yesterday having risen 17% on Wednesday, post result.

In the blood bin was UR Westfield ((URW)), which fell -8.4% — a big move for a shopping mall REIT. AMP’s ((AMP)) result was already known but guidance was the issue as that stock fell -7.8%, and back to earth following the Hayne Train rally. Special mention goes to Pact Group ((PGH)) which fell another -7.7%.

There were a lot more besides, on what was to date the busiest day of the season in terms of number of reporting companies but still a quiet one compared to what awaits us next week.

The worst performing sector on the day were telcos (-1.7%), given Telstra ((TLS)) fell -2.2% on a slight miss and a dividend cut. Utilities (-1.0%) came in next worst while financials lost -0.8% thanks in part to AMP and a “disastrous” -3.8% fall for Suncorp ((SUN)) post result.

The balance was provided by energy (1.6%), which was more about a strong oil price than Woodside Petroleum’s ((WPL)) 1.9% gain on result, and materials (+0.8), in part thanks to South32’s ((S32)) 3.5% gain on result and in seeming defiance of an iron ore price slipping back from its highs.

At this stage of the game there is little in the way of macro influence evident in the Australian market with Wall Street idling ahead of any news on the trade front. Although Chinese trade data were in the frame yesterday.

Chinese exports rose a solid 9% year on year in January, ahead of expectation. However, New Year came earlier this year, and there is typically a scramble beforehand. Imports, on the other hand, fell -2%. Is there evidence here of tariffs having an impact? Imports from the US fell -41%.

In other news, Japan’s GDP rose 1.4% in the December quarter, which was a rebound from, but not enough to offset, the previous quarter’s -2.5% contraction, which reflected an impact from natural disasters.

Today’s local list of reporting companies is not quite as long as yesterday’s but the way things are going, it may not just be a quiet Friday.

Really?

Germany’s December quarter GDP growth came in at zip. Having contracted in the prior quarter, Germany has just managed to avoid the technical definition of recession. On an annual basis, Germany’s economy grew by a mere 0.1% in 2018.

But that number was not what set Wall Street off last night.

US retail sales fell -1.2% in December – the biggest monthly drop since 2009. Economists had forecast a 0.1% gain. In response, the Dow fell over -200 points.

But hang on, you’re kidding me aren’t you?

The December data have taken this long to drop because of the government shutdown. Wall Street is wondering whether it was the shutdown that also made the result so bad. Then there’s a matter of seasonal adjustment. Seasonally unadjusted, sales actually rose.

Economists are now scrambling to downgrade their March quarter GDP forecasts, given retail sales are at the heart of the US economy. But the general response is to take -1.2% with a grain of salt. It just doesn’t add up. For one, online sales showed a big fall, in stark contrast to numbers out of Amazon, which is half the US online market.

Wall Street won’t have to wait long to see if this is indeed a blip. The January sales numbers are due tonight.

Wall Street spent the rest of the session gradually recovering from the initial drop, although the Dow slid away again towards the close.

It appears increasingly likely the March 1 tariff deadline will be extended by 60 days. Trade talks continue to go “very well”, whatever that means.

An extension is good news and bad news. It implies a deal is close, just not yet close enough. That’s good. But it also means the trade theme is going to go on…and on…and on….

Speaking of good news and bad news, President Trump will sign the bill that avoids another shutdown. But he will also enact emergency powers so he can get his goddamned Wall because he bloody well can. One small step for man, one giant leap backwards for democracy.

Trade is the critical issue, and discussions in China will wrap up tonight, one presumes. We can only but stand by.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1312.20 + 6.40 0.49%
Silver (oz) 15.59 + 0.06 0.39%
Copper (lb) 2.79 + 0.01 0.47%
Aluminium (lb) 0.83 – 0.01 – 0.99%
Lead (lb) 0.91 – 0.00 – 0.27%
Nickel (lb) 5.57 – 0.05 – 0.90%
Zinc (lb) 1.18 – 0.01 – 0.82%
West Texas Crude (Feb) 54.52 + 0.58 1.08%
Brent Crude (Apr) 64.64 + 0.99 1.56%
Iron Ore (t) futures 87.80 + 1.35 1.56%

The US dollar fell only -0.1% on the sales data, but then the weak German GDP was a counter.

Base metal prices continue to drift lower, although copper held up last night. Iron ore is heading back up again.

Oil prices continue to track higher, attributed to growing optimism around a trade deal.

The Aussie is up 0.2% at US$0.7104.

Today

The SPI Overnight closed down -11 points or -0.2%.

Chinese inflation numbers are out today.

All eyes will be on US January retail sales, along with industrial production.

Today’s list of reporters includes Domain Holdings ((DHG)), IOOF Holdings ((IFL)), Link Administration ((LNK)), Medibank Private ((MPL)), Origin Energy ((ORG)), Sonic Healthcare ((SHL)) and Whitehaven Coal ((WHC)).

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AMC AMCOR Downgrade to Neutral from Outperform Credit Suisse
AZJ AURIZON HOLDINGS Upgrade to Neutral from Sell Citi
Upgrade to Equal-weight from Underweight Morgan Stanley
Downgrade to Neutral from Outperform Macquarie
BAP BAPCOR LIMITED Upgrade to Add from Hold Morgans
BEN BENDIGO AND ADELAIDE BANK Downgrade to Sell from Neutral Citi
Downgrade to Underperform from Neutral Credit Suisse
Downgrade to Sell from Neutral UBS
CGF CHALLENGER Downgrade to Sell from Hold Deutsche Bank
CLW CHARTER HALL LONG WALE REIT Upgrade to Hold from Lighten Ord Minnett
COH COCHLEAR Downgrade to Equal-weight from Overweight Morgan Stanley
FLT FLIGHT CENTRE Downgrade to Hold from Add Morgans
GPT GPT Downgrade to Neutral from Outperform Macquarie
LLC LENDLEASE Upgrade to Buy from Neutral UBS
NST NORTHERN STAR Upgrade to Accumulate from Hold Ord Minnett
PGH PACT GROUP Downgrade to Underperform from Neutral Macquarie
Downgrade to Reduce from Hold Morgans
SGP STOCKLAND Downgrade to Sell from Neutral UBS
SKI SPARK INFRASTRUCTURE Downgrade to Hold from Accumulate Ord Minnett
SUL SUPER RETAIL Downgrade to Hold from Add Morgans
TCL TRANSURBAN GROUP Downgrade to Neutral from Outperform Macquarie
URW UNIBAIL-RODAMCO-WESTFIELD Downgrade to Underperform from Outperform Macquarie
VAH VIRGIN AUSTRALIA Downgrade to Underperform from Neutral Credit Suisse
VOC VOCUS GROUP Upgrade to Overweight from Equal-weight Morgan Stanley
Greg Peel

About Greg Peel

Greg Peel joined Macquarie Bank in 1986 and acquired trading experience in equities, currency, fixed income and commodities derivatives, ultimately being appointed director of equity derivatives trading. He later published In With The Smart Money (a plain English guide to the mysterious world of financial markets and derivatives) and acted as a consultant to boutique investment funds. In 2004 Greg joined FNArena as a contributing writer. He is now a director and principal of the company. Greg compliments the journalistic background of the FNArena team with lengthy experience as a financial markets proprietary trader.

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